Is Thai Partner Mandatory to Start a Business in Thailand?

As a Foreigner, if you want to start a business in Thailand, a Thai Partner is mandatory. But in some cases, there is some exception. There is no distinction between Thai and foreign stockholders in the Thai Civil and Commercial Code. As a result, foreigners can Start a Business in Thailand without having to work with a Thai partner.

However, the Foreign Business Act B.E. 2542 (1999) places some restrictions on the types of business operations that foreigners can start in Thailand. This is especially true for most services activities that are prohibited under the FBA’s list 3. However, the Board of Investment authorizes up to 100% foreign ownership in enterprises. This is possible if the investment is in commercial activities that are crucial for Thailand’s development.

Foreign Business Act Restrictions to Start a Business in Thailand

The FBA has three lists of prohibitions (list 1) and restrictions (list 2) for commercial activities of foreign businesses (list 2 and 3). Foreign companies must get a Foreign Business License for activity on lists 2 and 3. Foreigners can form joint ventures with local partners due to the difficulties and relevant expenses of getting a Foreign Business License.

Obtaining a Foreign Business License

For an FBL, the foreign company must show that it will offer expertise and teach local personnel new skills. The process takes around 6 months, with a lot of back-and-forth from the authorities. The announcement of the decision is on a case-by-case basis.

Joint Venture with Thai Partner

The FBA defines a foreigner as a corporation with foreign owners owning 50% or more of the share capital. Therefore, a company in which Thai stockholders own 50% or more of the shares is a Thai company and is exempt from the FBA’s restrictions. It is important to highlight that the definition of a foreign firm considers capital ownership rather than corporate control.

BOI Promotion to Start a Business in Thailand

The BOI promotes a variety of business activities that are crucial for Thailand’s development. This includes factories, electronics, medicines, regional financial centers, and, more recently, digital. One of the benefits provided by the BOI is foreign ownership. Additionally, it reduces requirements for employing foreign skilled staff with provisions of tax exemptions. The application process for a BOI promotion typically takes 3 to 6 months.

Since FBA bans most business activities, a foreign investor must check their eligibility for BOI promotion. If the business activity is not BOI-eligible, a Foreign Business License may be an option for creative activities. However, a firm with a local partner remains the most popular investment vehicle for foreigners.

About Foreign Shareholders

Section 4 of the FBA defines a foreigner in the following way:

1. A natural person who does not have Thai nationality;
2. A juristic person without legal registration in Thailand;
3. A juristic person who meets the following criteria and is registered in Thailand:

• Being a juristic person in which at least one-half of the capital shares are held by persons under (1) and (2).
• A juristic person in which the persons under (1) and (2) have invested in an amount at least equivalent to one-half of the total capital thereof.
• Being a limited partnership or a registered ordinary partnership in which the managing partner or manager is the person under (1) and (2).
• A juristic person registered in Thailand in which at least one-half of the capital shares are held by individuals under (1), (2), or (3).
• A juristic person in which the persons under (1), (2), or (3) have made an investment in the amount of at least one-half of the total capital.

Foreigners Control over a Thai Company

Using Thai nominee shareholders to get around the FBA is against the law and could result in criminal penalties (sections 36 and 37). Due to the lack of enforcement of this regulation, there is no specific definition of what constitutes a Nominee. However, a nominee is a natural or legal person who owns shares in a partially foreign-owned company. It must be without actually investing in it.

The Bottomline

If you are a foreigner and want to start a business in Thailand, the primary thing you need is expert legal support. Be it your approaching the local authorities or the Board of Investment for promotions, you will need local Thai support. It will never be possible for you to know all the laws and regulations governing the business registration process in Thailand for foreigners. Email us for support and start your business in Thailand.

Originally published at https://www.konradlegal.com on December 6, 2021.